I used to spend afternoons in the basement of the Mercer County Clerk's office in New Jersey, flipping through paper records nobody else was looking at.
This was around 2003, about two years after I bought my first property. I had already caught the bug. Buying one house had turned into buying several, and I was hungry for a way to find deals that other people were not chasing.
So I started looking at private notes. Second mortgages, mostly. I would go down to the clerk's office in Trenton, and different towns across Central New Jersey, and go through the records by hand looking for who was holding paper on a property.
Most of it was useless to me. Bank of America, Countrywide, the big lenders holding standard second liens. I was not interested in those. But every so often, mixed in with all the institutional names, I would find one that said something like John Smith.
An individual. A real person who had sold a house and carried a second mortgage for the buyer instead of taking all cash. That was the name I wanted. I would track the person down and make an offer, 60 or 70 cents on the dollar. They got a lump sum today. I got a stream of payments, bought at a discount, secured by the property underneath it.
Around that same stretch, I stumbled onto something that took the same idea and pointed it somewhere I never expected. This was before social media existed, on some forum where strangers traded ideas nobody else cared about. I found a guy financing hot tubs in Seattle.
He was not buying houses. He was financing $3,000 hot tubs, and the tool he used was a second mortgage. A hot tub installer wanted to sell more units, buyers did not always have $3,000 in cash, so he would finance the purchase and put a lien on the buyer's house for the amount owed. Then he would buy the note from the installer at a discount, paying maybe $2,800 for a $3,000 note. He collected payments of $3,000 plus interest. His real return stacked the discount on top of the interest rate.
I read that and something clicked. It was not about hot tubs. It was the same structure I had been chasing in that Mercer County basement, just built on the front end of a sale instead of found after the fact in dusty records.
I started reaching out to swimming pool installers around New Jersey. Pools were a much bigger ticket item, $20,000 to $30,000 at the time, and installers were just as hungry to close sales as that hot tub guy's contacts were in Seattle. I worked out a similar arrangement. They would sell the pool, I would finance it, and I would take a second lien position on the homeowner's property for the amount financed, plus interest.
The part I never skipped was checking the equity underneath me. If a house was worth $300,000 and the owner only owed $120,000 on their first mortgage, I had no problem putting a lien of $20,000 or $30,000 behind it. There was enough cushion that my position was genuinely protected. If the numbers did not leave that kind of room, I passed.
That pool program was the first time I ever raised outside capital in any organized way. Not through a fund, not through investors sitting across a table from me. Through installers who needed a financing partner and New Jersey homeowners who wanted something in their backyard.
Looking back, both of those threads taught me the same lesson from two different directions. In Mercer County, I was digging through records after the fact, finding notes that already existed and buying them at a discount. With the pools, I was creating the note myself, upfront, using the same math. Buy or originate below face value, get paid interest on top, and always leave yourself enough equity cushion that the collateral protects you if anything goes wrong.
Good structures are portable. Someone, somewhere, has usually already solved the version of the problem you are stuck on, whether it is sitting in a public record you have not looked at yet or in a forum thread about hot tubs that has nothing to do with real estate on the surface.
I still catch myself looking for that same shape in new places. A discount, a lien, enough room underneath to sleep at night. It found me first in a basement full of paper files in New Jersey and a stranger's post about hot tubs. It has been paying me back in one form or another ever since.